Selling Sushi Restaurants
There are now close to 20,000 sushi restaurants in the United States, and the numbers keep rising every year. Most sushi restaurants are single locations (usually owner-operated) while some expand and become chains with multiple locations. Better established and growing sushi restaurants with a transferable customer base and a solid lease and location sell at higher valuations. Because of the unique knowledge necessary to prepare sushi, most buyers of sushi restaurants are competitors seeking another location or qualified individual buyers with relevant industry experience. Sushi restaurant owners should prepare their historical financials, update and modernize their equipment to showcase the premises, and hire a business broker experienced in selling restaurants and targeting strategic buyers with familiarity in the restaurant industry.
Valuing Sushi Restaurants
Sushi and Japanese restaurants typically sell for about two times the adjusted owner benefit (or true economic profits derived by a working owner). This means a working owner will recoup their investment in about two years. Sushi chains with higher economies of scale, profits, and a more valuable brand sell for higher multiples than single unit operators. The main factors affecting the valuation of sushi restaurants are the location and associated leasehold rights, the physical assets included in the sale, and the transferability of the customer base. The transferability of the customer base after the sale is affected most by the extent to which the head sushi chef will stay after the sale or be willing and able to train the buyer after the sale.
Location of Sushi Restaurants
As a general rule of thumb, younger, wealthier, and urban restaurant patrons are more likely to frequent dine-in sushi restaurants. Some sushi restaurant chains may cater to middle income customers with more price conscious menu offerings. The location of sushi restaurants should be within a tight geographic radius of their target clientele. The best measure of a sushi restaurant’s location is the trajectory of its sales and profits over a multi-year time period. Rising sales and profits over a long period of time is a strong signal that a sushi restaurant has a location close enough to its type of clientele.
Lease of Sushi Restaurant Impacts Valuation
- The location of a sushi restaurant is only as good as its lease and associated leasehold rights (or the right of a commercial tenant to occupy and use leased premises).
- A long term lease (of at least three years) with minimal annual rent increases (capped at 3-5%) greatly enhances the value of sushi restaurants.
- Additionally, the lease of a sushi restaurant should prevent competing sushi restaurants from opening in the same commercial plaza.
- Most buyers of sushi restaurants will want a long term lease as a contingency of the deal prior to closing.
- Buyers should be aware that the landlord will examine their own credit worthiness, financial qualifications, and business experience prior to extending the lease.
- The amount of the annual rent of a sushi restaurant should be less than ten percent of its annual gross sales.
- For example, if the monthly rent is $10,000 (or $120K/year), then the gross sales should be at least $100K/month (or $1.2M/year).
- This general rule allows the owner sufficient profit margin after accounting for the costs of goods sold (for food and beverage) as well as payroll costs.
- A sushi restaurant with rent that significantly exceeds 10% of its gross sales generally needs to lower its asking price in order to attract buyers.
Physical Assets of Sushi Restaurants
Sushi restaurants with a high amount of physical or tangible assets will result in a higher valuation when it comes time to sell. The physical assets of a sushi restaurant consists of its movable equipment (both in the kitchen and in the dining room), leasehold improvements or structural improvements to the transferable leased property, and inventory. The cost of building out and equipping a high end sushi restaurant with amenities such as a sushi bar may be extremely costly. Assuming that this cost translates into a relatively high amount of sales (especially compared to the rent) and profits, then the investment is worthwhile.
Transferability of Customer Base Needed for Sale
The transferability of the customer base for a sushi restaurant is in many cases the most important aspect of the sale. Often times, the owner-operators of sushi restaurant are family members where one spouse is the head chef and the other spouse is in charge of the dining room. In order to effectuate a smooth transition with the buyer, the sellers must be prepared to train the buyer in how to prepare and serve their menu. Some buyers may have their own ideas of what menu to offer their customers, but the sellers should be willing to train the buyer for a negotiable period of time (usually three months or so) if necessary.
Non-Compete Often Requested from Buyer
Because many sushi restaurants are owner-operated, buyers of sushi restaurants typically require the sellers to sign an agreement not to compete with the buyer after the sale. Known as a ‘non-compete agreement’, such contracts prevent the sellers (including both spouses) from operating a competing restaurant (or working for a competing restaurant) for a specified time within a specific geographic area. A reasonable non-compete agreement for a sushi restaurant would be about three years within ten miles of the restaurant. This enables the buyer to be more assured of the transferability the customer base, which is any sushi restaurant’s most important intangible asset.
The sale of sushi restaurants should be handled confidentially and in a manner which maximizes its value. The adjusted owner benefit used to value the restaurant must account for the owner’s salary as well as any personal expenses that the flow through the financial statement. The valuation range is based on many factors including the lease, location, trajectory of sales and profits, physical assets, and the transferability of its customer base.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.